Tactical Screening: Indonesia

Screening for potential undervalued securities in Indonesia

We intend to employ a similar equity screening methodology that was undertaken for the Malaysian market (See Link) to screen for potentially undervalued securities listed on the Jakarta Stock Exchange (JSE). Recap, our screening methodology is predominantly based on the formulae of justified price-to-earnings (P/E) and price-to-book (P/B) ratios. Our computation of justified P/E and P/B for Indonesia is shown as follows:

ID_Oct16_Computation.png

Based on the above, the results of our screening are shown as follows:

ID_Oct16_Results.png

Lamicitra Nusantara Tbk PT

PT Lamicitra Nusantara Tbk is an Indonesia-based company engaged in the development and management of real estate and property. The Company’s business activities are the management of container depot, hospitality, trading, and development and operation of real estate and property. Some of the Company’s projects include Tanjung Emas Export Processing Zone, Jembatan Merah Plaza 1 and 2, Ruko Jembatan Merah, Hotel Tunjungan Crystal, Depo Peti Kemas, Darmo Hill Real Estate, Pusat Grosir Surabaya and Tunjungan Electronic Centre. The Company’s subsidiaries are PT Tunjungan Crystal Hotel, PT Dharmabhakti Adijaya, PT Wiratangguh Dharmacitra, PT Penta Persada Pertiwi and PT Persada Alam Nusantara. Its head office is located in Surabaya, Indonesia. Read more

ID_Oct16_Coy.png

Purely from a technical perspective, it appears that PT Lamicitra Nusantara is currently on a downward trend, after touching a peak of more than IDR500. It has fallen below its 20D-MA support line as well as a bearish MACD indicator. Potential support line in between IDR260-IDR300 per share.

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Betting On Indonesia

Indonesia does present growth opportunities, given the sheer size of its population. If I would ever invest in Indonesia, it will be in its consumer sector. One such potential counter in this sector is PT Fast Food Indonesia Tbk.

PT Fast Food Indonesia Tbk engages in the food and restaurant business. The firm is the franchise holder of KFC brand in Indonesia. It operates through the following segments: Jakarta Restaurant Support Center (RSC), Medan RSC, Makassar RSC, Palembang RSC, Bandung RSC, and Others RSC. Its products are grouped into categories such as Menu Goceng, Menu Praktis, and Package Meals. Menu Goceng includes food items such as Mocha Float, and Burger Deluxe. Menu Praktis offers food items that are easy to take away or consumed along the way such as Colonel Burger, Twister, Colonel Yakiniku, and Fish Fillet. Package Meals provides meal saving combinations such as Super Panas, KFC Attack, and Super Mantap. The company was founded on June 19, 1978 and is headquartered in Jakarta, Indonesia.

FastFood_GP

What happen to its share price: Peaked at close to 3,500 (Jul 13) and has since descended to about 1,065 (1 Apr 2016). One wonders what could have possibly caused such dramatic decline over this period. Coincidentally, we also saw the sharp depreciation in the Indonesian Rupiah since mid July 2013 as well.

Rupiah Graph.png

Without conducting a detailed fundamental analysis as well as macro analysis on Indonesia, let’s explore the relationship between the share price of Fast Food and IDR.

A simple regression analysis was performed using historical data (since 1 Jan 2012) and the results of our analysis are summarised as follows:

 

Model Fast Food.png

Based on the above results, the statistical results appear significant. The relationship is defined as : Share Price (IDR) of Fast Food = 6,498.40 -0.374273 (Exchange rate in IDR/USD)

Comparison between actual share price of Fast Food vs predicted share price (based on the above formula):

FastFood_PredictedvsActual.png

The above graph shows that the actual share price does not significantly deviate from its predicted share price. Currently, it appears that there is potential upside as Fast Food’s last traded price (IDR1,065) is relatively lower than (i) its predicted share price as well as (ii) below 95% confidence interval’s lower bound. At current exchange rate of IDR/USD of 13,137, the predicted share price of Fast Food is IDR1,581 whilst the 95% confidence interval range is between IDR1,143 and IDR2,019.

What about the Indonesian Economy & Rupiah? Can it potentially go lower?

The Indonesian economy is poised to return to a gradual growth path after five years of decelerating growth.The Asian Development Bank (ADB) on Wednesday (Mar 30) projected Southeast Asia’s largest economy to grow by 5.2 per cent in 2016 – up from 4.8 per cent in 2015. http://www.channelnewsasia.com/news/business/indonesia-economy-poised/2649240.html

Macquarie, the second-most accurate forecaster for emerging-market Asian currencies in the latest Bloomberg rankings, strengthened its end-June projection for the rupiah to 12,600 a dollar this month, implying a 6.3 per cent gain from Tuesday’s close of 13,400. The window could be closing for Indonesian shoppers though, with the median estimate of analysts surveyed by Bloomberg showing a drop to 13,950 by the end of the year. Read more: http://www.afr.com/markets/currencies/indonesias-rupiah-has-room-to-rise-still-higher-20160329-gntok3#ixzz44gWGSlrz

 

DISCLAIMER: THIS SITE IS FOR INFORMATION AND ILLUSTRATIVE PURPOSES ONLY AND DOES NOT PURPORT TO SHOW ACTUAL RESULTS. IT IS NOT, AND SHOULD NOT BE REGARDED AS INVESTMENT ADVICE OR AS A RECOMMENDATION REGARDING ANY PARTICULAR SECURITY OR COURSE OF ACTION. SOURCES USED IN THIS SITE HAVE NOT BEEN INDEPENDENTLY VERIFIED FOR ACCURACY. YOU SHOULD SEEK INDEPENDENT AND PROFESSIONAL INVESTMENT ADVICE IN REGARD TO YOUR INVESTMENT DECISIONS. THE AUTHOR MAY HOLD POSITIONS IN THE SECURITIES MENTIONED ABOVE.